Becton Dickinson Executive Summary Problem

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1 Justin Dill, Jacob Lindamood, David Stauffer, Mihai Prisacariu, and Jamie Zikos Professor Alia Crocker Strategic Problem Solving December 8 th 2015 Becton Dickinson Executive Summary Problem Becton Dickinson (BD) has been one of the leaders in medical technology since its founding in BD currently has 80% market share in the global syringe market. As the leader in this market, BD has come under a lot of scrutiny around anti-trust laws and FDA regulations. In 2002 and 2007, BD settled in the amount of $100 million and $340 million under anti-trust laws and not holding up to FDA rules and regulations. With 80% market share and a global footprint, BD decided to focus on safety and reliability in regards to their product portfolio. Therefore, BD merged with CareFusion, a medical management company with a focus on software-driven products, for $12.2 billion. There were many reasons that Becton Dickinson decided to merge with CareFusion as a value-added approach. However, this merger also produced many unforeseen challenges as well. BD wanted to spark a culture shift within the company since CareFusion was a young, agile, and entrepreneurial company. But, CareFusion operated this way at the cost of FDA rules and regulations. With being involved in kickback lawsuits pre-merger and multiple Class I recalls post-merger, CareFusion was not investing enough money or effort into FDA rules and regulations. What can Becton Dickinson do to overcome the challenges created by the merger with CareFusion in regards to the safety and reliability of its products? Proposed Solutions 1. Fully integrate CareFusion into Becton Dickinson s operations Since BD wants to focus on the reliability and safety of their products, this solution would allow BD to have more control over CareFusion s processes. This solution will further streamline the medical management processes between the two companies. By implementing this solution, this will further strengthen the relationship with the Cambridge Trust Company, who focuses on sustainable and responsible investment practices. 2. Create a promotional campaign around safety and reliability while investing in an FDA regulations training program for new and current employees This is the key factor when moving forward for BD. Through traditional advertising platforms such as business and healthcare magazines and press releases, BD can prove to its customers that they are focusing on continual improvement in regards to the safety and reliability of their products. We believe that BD should implement the above solutions to address the safety and reliability problems created by the merger with CareFusion. However, these solutions will require further monetary investments moving forward.

2 Becton Dickinson Becton Dickinson and Co. (BD) has existed in various forms since 1897, having been founded by American businessmen Maxwell W. Becton and Fairleigh S. Dickinson. Its initial business model was based around the production and sale of needles and syringes for medical use. Today, the company s largest segment, BD Medical, still serves this purpose producing 80% of all syringes globally. Additionally, BD Medical produces and sells surgical equipment, catheters, and critical care systems. The company also has two additional segments: BD Diagnostics, which is responsible for the design, production, and sale of blood collection systems, blood culturing systems, disease testing systems, and cancer screening equipment (among other products); and BD Biosciences, which designs, produces, and sells laboratory equipment for the sorting and analysis of cells and antibodies. Furthermore, BD has over 30 wholly owned subsidiaries in the medical care industry, located both in the United States and internationally. Financially, BD is among the world s largest in the Medical Technology Industry, reporting revenues upwards of $8.4 Billion in its most recent fiscal year. Aside from its strict business activities, BD has several charitable and environmental objectives which it takes very seriously. Charitable organizations to which BD has donated funds, product, and expertise include: UNICEF, American Red Cross, the U.S. President s Emergency Plan for AIDS Relief, Stop TB Partnership, the Global Business Coalition on Health, and programs at Columbia University, the University of Virginia, and Fairleigh Dickinson University (named after BD co-founder Fairleigh Dickinson). BD also has an involved Sustainability strategy and Sustainability goals for 2020, based on the ideas of Innovation (developing unique solutions for disease management and worker/patient safety), Access (creating low-cost solutions to provide health care in resource-limited populations), Efficiency (reducing greenhouse gas emissions and life-cycle impacts of products), and Empowerment (increasing diversity of workforce, achieving superior safety performance, and driving social impact through volunteer programs). CareFusion Merger In March 2015, Becton Dickinson Co. made the strategic and complimentary decision to acquire CareFusion Corp. for $12.2 billion. Becton Dickinson is the leader in syringe manufacturing and CareFusion has strong capabilities in technological medicine dispensing. Becton Dickinson is confident that this will allow them to become the global leader in medication management and patient safety solution. This portfolio approach encourages innovation, globalization, and value-adding impact through the complimentary solutions that the merge provides. The merge has significantly reduced costs without compensating the quality and value delivered to their customers. The products that the two companies provide perfectly align each other, which essentially simplifies the entire process. By 2018, $250 million will be saved through reducing overhead expenses, combining operations, and lowering manufacturing operations (Bloomberg). These savings will then be reflected through lowering the costs passed onto the hospitals. In both the U.S. and around the world, hospitals are under extreme pressure to

3 reduce costs and increase their efficiency. Hospitals are now turning towards buying in large bulks as a method to lower their costs and maximize volume. The Becton Dickinson and CareFusion merge focuses hospitals needs for improved efficiency and cost reduction by creating a one-stop-shop (Bloomberg). Becton Dickinson will now be able to offer a wider range of services like: drug preparation, dispensing on the hospital floor, patient administration and monitoring. The expanded services and capabilities of the merge will put Becton Dickinson ahead in the $20 billion medication management market. CareFusion will be able to expand their services globally through leveraging Becton Dickinson s global presence. 60% of Becton Dickinson s sales are abroad, while only a mere 25% of CareFusion s are abroad. The merge caters to emerging markets and already developed markets by offering a proactive approach in the medical industry. With their different geographical and service strengths, they are able to utilize and compliment their research and development to expand at a much more rapid rate. Globally expanding the services of CareFusion will emphasize Becton Dickinson s ongoing focus and vision of being customercentric. With global healthcare needing to focus more on doing more with less, the Becton Dickinson and CareFusion merge addresses the struggles in all kinds of markets. Becton Dickinson and Retractable Technologies Lawsuits Becton Dickinson also has an unfortunate history concerning lawsuits. In 1997, Retractable Technologies came out with a new syringe that was much safer for hospital personnel since it eliminated needle-sticks entirely. Eliminating needle-sticks prevented the transfer of infectious diseases from the patient to the hospital personnel through accidental syringe pokes during treatment. Since BD controls 80% of the syringe market in America, it is safe to say that their syringes contributed to a large amount of the 385,000 needle sticks that occur each year, according to the CDC. Retractable Technologies worked with BD to have them license this new and better syringe, the VaishPoint. Talks died when BD did not want to commit the finances in order to retool their technology to produce the VanishPoint syringe. After talks subsided, RT found themselves being locked out of the market. Hospital supply purchasing went through group purchasing organizations, or GPOs, which helped them buy bulk at discount. Vendors, like BD, pay the GPO administrative costs so that the GPOs only offer a narrow group of vendors available to the Hospitals, keeping out less prominent companies like RT. Hospitals simply did not want to break the contracts that they had with companies like BD, even though RT claimed to have superior technology. In 2002, RT sued BD under the Sherman Antitrust Act, claiming that BD monopolized the industry, BD settled for $100 million. In 2007, RT sued BD again. This time, RT attacked the inferior syringes that BD produced saying they did not comply with federal safety laws. The suit claimed that BD s safest needle only created more opportunities for needle-sticks. Also, that BD kept their subpar syringe on the market to drive down the perceived need for the VanishPoint while lying about the sharpness and accuracy of their own needles. After six years in court, BD was found guilty of monopolizing and lying to their customers. They were ordered to pay $340 million in

4 damages to RT and admit that they had lied. After these two suits, BD still decided to not license the VanishPoint from RT, but rather merge with CareFusion. This was not the first time that BD was found to have price-fixing violations. In 1960, BD was cited by the Justice Department for price-fixing. To avoid maximum repercussions, BD switched from glass to plastic syringes to remain on top of the syringe industry. The merger with CareFusion is a promising step in BDs commitment to improving the safety of their syringes. CareFusion Lawsuits and Recalls With the merger of BD and CareFusion completed in March of 2015, there are also many negative impacts to consider. The medical technology industry is built around strict rules and regulations to stress the ethical impact of leading companies. Before the merger took place, CareFusion was involved in a lawsuit in January of 2014 regarding kickbacks brought up by a former vice president of regulatory affairs at CareFusion, Cynthia Kirk. Dr. Charles Denham confirmed that CareFusion paid his company, Health Care Concepts Corporation, $11.6 million to promote their product ChloraPrep. To strengthen the issue, at the time of the kickback, Dr. Denham was the co-chair of a National Quality Forum committee that provided industry guidance on a range of patient-safety topics. CareFusion agreed to a settlement of $40.1 million for the kickbacks as well as marketing the product for unapproved uses. The United States contends that CareFusion's payments to HCC were made for the purpose of influencing Dr. Denham's work as co-chair of the Safe Practices Committee and for the purpose of inducing Dr. Denham to recommend, promote and/or arrange for the purchase of CareFusion's product, ChloraPrep, in violation of the federal antikickback statute ( This lawsuit might act as a reason for CareFusion to merge with Becton Dickinson as a way to increase the ethical decisions of this young company. However, there have even been some negative implications post-merger as well. The merger between BD and CareFusion was supposed to act as a streamlining process in terms of both product design as well as rules and regulations. BD was searching for a young software-focused company to implement these technologies into their physical products whereas CareFusion needed assistance in quality control processes in regards to industry regulations. However, the FDA has issued two Class I recalls (most severe and dangerous) on CareFusion products since the merger took place. CareFusion s Avea Ventilator was recalled in May of 2015 as a result of a potential malfunction of the 5 psi pressure transducer. The most important recall regarding the merger is related to CareFusion s Alaris Syringe Pump. This product is essential in regards to the merger between BD and CareFusion as BD is the leading producer of syringes worldwide. One of the most significant criterion of the merger was CareFusion s software accuracy when it comes to fluid delivery. However, the Alaris Syringe Pump has an extreme failure in regards to a visible alarm to stop supplying infusion to the patient. The pump does not

5 react to any error code key presses until the product is detached and reattached to the PC unit. According to the FDA, failure of syringe module may result in a delay or interruption of therapy and can lead to serious patient injury or death. This recall that occurred in July of 2015 causes a major issue for Becton Dickinson. On top of CareFusion s leniency towards industry regulations, the company s quality control is not performing as anticipated. Recommendations for Becton Dickinson Recommendation 1: Becton Dickinson should fully assimilate CareFusion and its entire operations under the name of BD. This will expedite the process of improving upon the safety of the syringe while showing how much BD believes in the technology offered by CareFusion. Though both companies are under scrutiny by the press due to their problems in the past, they are showing a lot of progress on their merger. The Cambridge Trust Company is a wealth management company that only does Sustainable and Responsible Investing (SRI - an investment discipline that considers environmental, social, and corporate governance criteria to generate long-term competitive financial return and positive impact) has invested in Becton Dickinson due to their strategic acquisition of CareFusion. The Cambridge Trust Company does first hand research by directly contacting and investigating the companies they invest in. Their investment in BD shows how the merger between Becton Dickinson and CareFusion has a big positive social impact. Recommendation 2: Create an advertising campaign promoting how Becton Dickinson is a very responsible company and that it continuously improves upon the safety and reliability of its products. Even though, DB is not selling their products directly to the people who need them, it will help BD regain trust while showing the dedication for improved safety. This campaign should be targeted to the general public through both press releases and traditional advertising channels such as: TV commercials, Healthcare magazine and radio advertising. The press releases would be comprised of formal presentations of the specific facts related to the improvements BD has made to its products. These improvements would include further investments in FDA regulation training for new and current employees at both CareFusion and BD. The commercial advertising should have content that relates to the people who might benefit from the products that BD is making while portraying trust and safety to the consumers. By implementing the above recommendations, Becton Dickinson will address the safety and regulation concerns created through the merger with CareFusion. It is extremely important for Becton Dickinson to gain lost brand equity after multiple lawsuits and recalls that have taken place recently. With that being said, the above solutions will require further monetary investments in order to gain back the trust of its customers.

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